If I'm moving, in which state should I set up my new S corporation?
If you're someone who lives in one state but you anticipate moving in the near future to some other state, choosing the right state for your new S corporation can be tricky. For example, suppose you currently live in Indiana but plan to move, say, to Oregon in the next year or two. Should you set up the new S corporation in Indiana? Or should you set up in Oregon?
Foreign Registration Requirements
While you can tie yourself in knots over the "which state" question, one thing to understand about state corporation laws is that you will need to either form the corporation or register the corporation in any state in which you do business.
This means that in a case where you do currently live in, say, Indiana, you either need to form an Indiana corporation or you will need to set up, say, an Oregon corporation and then register your Oregon corporation as "foreign" corporation doing business in Indiana.
Understanding Your Only Two Choices
As a practical matter this foreign-corporation-registration requirement means that an S corporation business owner who anticipates moving to another state has only two choices:
The first choice? A business owner can incorporate in the current home state (like Indiana in my example) and then at some point in the future register the corporation as a "foreign" corporation in a new state (Oregon in my example) when the owner moves.
The second choice? A business owner can set up the corporation in the other state (Oregon in my example) to which the owner plans to move and, in the meantime, register the corporation as a "foreign" corporation doing business in the original home state (Indiana in my example). Those are really the only two choices.
Usually the Right Decision
Accordingly, if you do plan to move to another state--and your plans are firm--what you probably want to do is set up your corporation in the new state to which you plan to move.
Of course, in the months before you move to that new state, you will need to register your corporation as a "foreign" corporation doing business in your home state. But after you move, you can stop registering your S corp as a "foreign" corporation.
Thinking Outside the Box
Let me also give you one other idea: You may want to not incorporate your business if you plan to move in the very near future and will operate only a very part-time venture in the early weeks and months.
In other words, you may want to operate your business as an unincorporated sole proprietorship for few weeks or few months. Then when you do move to your new state, you can set up a corporation in that state. This approach simplifies your corporate paperwork while you're in your startup phase--and probably with very little tax cost or increase in legal liability.
Additional Information You May Find Useful
If you want additional information about how to maximize the tax savings related to running a business or investment venture, you may also be interested in one of our downloadable e-books (see descriptions below). Each book covers a category of tax planning topics that easily save a business owner significant amounts of income or self-employment taxes (potentially thousands of dollars a year) and is instantly downloadable.
Often the best tax saving tool private companies have? The Section 199A deduction which allows them to avoid taxes on the last 20 percent of their income.Read More
Using an S corporation for your business? To maximize savings, you need to minimize the salary paid to shareholders. But this decision is tricky.Read More
Nearly secret, the federal government's employee retention credits provide tremendous payroll tax savings for most small businesses... A new book from our firm explains.Info here